The Center for Retirement Research at Boston College turns out some interesting work focusing on financial security in retirement. A recent paper by Alicia Munnell suggests that the real full retirement age for Social Security should be 70. Munnell believes that government policymakers should create special emphasis on this idea, convincing more workers to extend their careers. Of course, the biggest problem is that many people can’t work that long due to health issues or the disappearance of their job.
When they take Social Security early, they accept lower benefits that replace less of their working income and there is little ability to boost income over what could be many retirement years.
Of course, the most successful retirements are those that rely less on maximizing Social Security income and more on flexibly using investment growth to fund quality of life choices and experiences.
Stretching life expectancy
Extending the topic of working longer and living longer, read this article from Slate - Why Are You Not Dead Yet? Life expectancy has doubled in the past 150 years. Here’s Why.
The U.S. Census Bureau recently released estimates for the number of Americans 100 and older and how that number is expected to grow. By 2015, it is projected that there will be 78,000 centenarians. By 2050, 442,000.
Is there a biological age maximum? The Social Security Administration would certainly like to know.
Health insurance in retirement
Of course, retiring early and longer life expectancy create the challenge of funding health insurance and the costs of care. Here’s a good outline of considerations for health insurance in retirement from Rande Spiegelman of Charles Schwab.
According to the Department of Labor, from 8/31/03 to 8/31/13, the cost of medical care in the U.S. increased by +43.1%, half again as large as the +26.7% increase in the Consumer Price Index measuring broad inflation over the same period.
The bull market for U.S. stocks is in its 56th month since the bottom on March 9, 2009. It certainly hasn’t been a straight line rise to recent record high prices of the S&P 500 Index. But growth of over 175% has put U.S. stocks into territory where many investment strategists have begun lessening there expectation for returns to continue at a robust pace.
The average bull market for the S&P 500 Index since 1950 has lasted 57 months. That’s the average, not the end point. Historically, November has been a good month for stocks. Over the past 23 years (1990-2012), the S&P 500 has gained an average total return of +1.5% during November. Over the entire period, 16 of 23 Novembers have been positive.
And the stock market rally continues to be broad-based. It is not being driven by one particular slice of the market. ”For a market rally derided as among the most unloved in decades, the S&P’s advancement rests on many pillars-10, to be exact,” writes Joseph Quinlan, Chief Market Strategist at U.S. Trust. “All 10 sectors of the S&P 500 have posted double-digit gains year-to-date, a rare market trait considering that it has been nearly 20 years since all 10 sectors of the S&P have registered annual gains of 10% or more. The last and only time it happened was in 1995.”
It is the investment decisions made near market tops and bottoms that are the most critical along the path to building long-term financial security. This is where emotional considerations can outweigh rational thoughts. The psychological aspects of money management are outlined well in this infographic: 5 Ways Your Brain Tricks You Into Making Bad Investment Decisions (after opening, click on the image to enlarge it).
The Emergency Economic Stabilization Act of 2008, a bill that established the Troubled Asset Relief Program (TARP), was signed into law by President George Bush on October 3, 2008. The total cost of TARP was originally estimated at $700 billion. According to the Treasury Department, as of October 22, 2013, 91% of the funds actually disbursed through TARP have been paid back.
But that hasn’t helped the government build much financial reserves. The government has projected that it will spend $3.77 trillion in fiscal year 2014 (i.e., the 12 months that began 10/1/13), equal to $10.34 billion a day. Treasury Secretary Jack Lew estimated that the Treasury Department had just $30 billion in cash as of 10/17/13, i.e., approximately three days of average spending for the nation.
So, looking ahead to where the money is going to come from, the IRS has announced 2014 tax brackets, deduction limits, etc.
THE COLLEGE CONUNDRUM
Students at Washington’s public universities got a break for the 2013-14 school year as tuition rates were frozen. It’s likely a temporary event before returning to stifling increases. According to recent details from The College Board, the average cost for one year of education at an in-state public college is $18,391 for the 2013-14 school year (including tuition, fees, room and board). The total one-year cost has increased +5.8% per year over the past 30 years. If the growth rate continues, today’s first graders will pay $156,868 for four years at an in-state public college during the years 2025-29.
Recently, the tuition rise has been three times that of general inflation and double that of medical care inflation. In this article from The Wall Street Journal, three economists debate how to get college tuition under control.
Complicating matters, projections of future job growth indicate much more need in fields that do not require college degrees than in those that do. This trend would exacerbate a problem facing many students. They graduate with too much debt and are unable to pay it down quickly since they are overqualified for low-paying jobs. Therefore, they delay big moments in life – moving out, marriage, having children, buying homes.
These all impact the national economy. But the bigger problem may be what happens to the personal economy. Another part of this challenge is that saving for retirement is delayed. The later one starts to save seriously for retirement, the less savings and market gains can compound over time and the more reliant one becomes on Social Security … bringing us right back to where we started. Managing a financial life that could fund retirement income toward age 100 and beyond and not be overly reliant on Social Security is a task that requires disciplined savings, smart investing and control of emotional response … especially when markets are at highs or lows.